Tencent says small clouds can’t get hardware, so big clouds can hike prices
Baidu joins the Chinese cloud price rise party
Two more Chinese cloud giants have signalled price rises for their services, again due to the impact of AI on their supply chains.
Alibaba Cloud was the first mover, yesterday announcing price hikes of between five and 34 percent and saying “the surge in global AI demand and rising supply chain costs” made the upwards changes inevitable.
Baidu Cloud, which branded itself as an AI cloud years before generative AI lit a fire on the field, followed with its own announcement that states “To ensure the long-term, stable operation of the platform and service quality, we have structurally optimized the pricing of some products.”
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The company will therefore increase the price of its AI-related services by between five and 30 percent, and hike the price of parallel file storage by “approximately 30 percent.”
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Tencent Cloud appears not to have announced price rises, but on its earnings call yesterday, company president Martin Lau said “In recent months, we're seeing a better pricing environment, especially for memory and CPU.”
Chief Strategy Officer James Mitchell said suppliers of datacenter equipment are “prioritizing the biggest, most regular customers, which are the hyperscalers such as ourselves.”
“Therefore … smaller cloud providers no longer have certainty that they can source supply, and they need to come to the hyperscalers. You know, the hyperscalers have been operating at low margins and so, you know, when the demand picks up, then, you know, we almost sort of as an industry have no choice but to pass through higher prices.”
Lau, however, pointed to a growing market for inferencing chips that cost less than the silicon needed to train models. The company president said Tencent realistically has a choice of one or two suppliers for training chips, but that Chinese companies and others are increasingly offering viable inferencing chips and they earn “much lower margin.”
So maybe Tencent’s costs won’t remain high for long, given the expected increase in inferencing workloads as more organizations put large language models to work.
CEO Pony Ma said Tencent’s cloud “achieved profit at scale due to increased enterprise demand for our industry-leading PaaS and SaaS products and supply chain optimization.” Lau later said Tencent Cloud produced adjusted operating profit of around $725 million, and hailed that outcome as a result of the company’s 2022 decision to focus on significant customers rather than chasing low-margin business. He also pointed out that Tencent Cloud could make more money, but the company continues to prioritize use of its GPU fleet for its own needs rather than renting them to customers.
Tencent won $28.3 billion revenue in its fourth quarter, 13 percent year-over-year growth. Full-year revenue topped $109 billion and grew 14 percent year-over-year. Gross profit grew by 21 percent to exceed $65 billion. ®